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Fitch predicts steady contracted sales for Vietnamese homebuilders

By Thanh Thom

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HCMC – Vietnamese developers’ contracted sales are forecast to increase by 20%-30% next year thanks to an improving operating environment, with rising vaccination rates and a continued easing of mobility restrictions likely to spearhead the economic recovery, according to Fitch Ratings.

The U.S. credit rating agency said in a statement on Monday that growth momentum should pick up after a temporary weakness in the second half of this year.

The weakness was said to have been caused by provincial mobility restrictions to rein in the country’s fourth wave of the Covid-19 pandemic that is delaying new launches and construction.

Housing demand in the Southeast Asian nation remains robust, underpinned by strong economic growth, favorable demographics and urban migration, according to Fitch.

The agency expects Vietnam’s real gross domestic product (GDP) to expand by 7.9% in 2022, off a weak second-half of 2021 due to Covid-19, as Fitch Ratings sees a resumption of trade and a gradual reopening of the economy.

Meanwhile, a slowdown in new housing supply and slow regulatory approvals – particularly in HCMC – will further support housing-price growth in key cities, says Fitch.

The agency predicts satellite cities and provinces located near Hanoi and HCMC will gain from the spillover demand.

Fitch expects its rated Vietnamese homebuilders to invest heavily in the land bank next year to support medium-term demand.

Consequently, the agency expects cash flow from operations, or CFFO, after land payments for DXG and PDR to remain negative in 2022 despite rising cash collections from contracted sales. However, BIM Land JSC should post neutral-to-positive CFFO on account of its mostly prepaid land bank.

“We estimate PDR will have the largest cash outflows in 2022 on higher land payments and masterplan costs than peers, which cash collections from property sales will not cover in full,” said Fitch.

“Access to domestic banks should allow it to fund its land costs, although 2022 property sales are more likely to hurt than its peers if land payments have to be scaled back due to a lack of funding.”

DXG is planning a VND4 trillion (US$176 million) private placement of shares to fund part of its 2022 outflows and has more flexibility than PDR to curb land payments without affecting its 2022 property sales to a major degree.

“We expect Vietnamese developers’ leverage to remain healthy in 2022 at around 25%-30%, which is comfortable for their ratings. This will provide sufficient debt headroom to fund land costs and absorb negative cash flows in the next one to two years,” says the U.S. agency.

The Vietnamese government expects to review and approve a new land law in 2022, which Fitch expects will offer clearer guidance on the land use, valuation and compensation.

The agency says the regulation is likely to be more transparent and could bring about greater certainty on the progress of existing projects facing delayed approvals and the associated payments and provide a faster turnaround of land-banking activities in the medium term.

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